(7) Goodwill & Intangibles

Goodwill

The Company performs its annual goodwill impairment testing for each reporting unit as of fiscal October month end or earlier if there is a triggering event or circumstance that indicates an impairment loss may have occurred. As of the October 28, 2018 testing date, the Company had $544.3 million of goodwill on its balance sheet. In 2018, the Company had eight reporting units. One of these reporting units, Water Quality, had no goodwill. The Company performed a qualitative analysis for each of the seven remaining reporting units, which include Blücher, Dormont, US Drains, Europe, Residential and Commercial, Heating and Hot Water Solutions (“HHWS”) and APMEA. As a result of the qualitative analyses, the Company determined that the fair values of the reporting units were more likely than not greater than the carrying amounts. In 2018, the Company did not need to proceed beyond the qualitative analysis, and no goodwill impairments were recorded.

In the fourth quarter of 2017, the Company performed a quantitative impairment analysis for the HHWS reporting unit in connection with the annual strategic plan and due to underperformance to budget, primarily caused by continuing softness in the condensing boiler market, weakness in the Company’s tankless water heater products and competitive pricing pressure. The Company estimated the fair value of the reporting unit using a weighted calculation of the income approach and the market approach. The income approach calculated the present value of expected future cash flows. The guideline public company method (market approach) calculated the estimated fair values based on valuation multiples derived from stock prices and enterprise values of publicly traded companies that are comparable to the reporting unit. The estimated fair value of the reporting unit exceeded the carrying value in 2017 and therefore, no impairment was recorded.

The changes in the carrying amount of goodwill by geographic segment are as follows:


	December 31, 2018
	Gross Balance								Accumulated Impairment Losses						Net Goodwill
			Acquired		Foreign
	Balance		During		Currency		Balance		Balance		Impairment		Balance
	January 1,		the		Translation		December 31,		January 1,		Loss During		December 31,		December 31,
	2018		Period (1)		and Other		2018		2018		the Period		2018		2018
	(in millions)
Americas	$	437.4		1.5		(0.8)		438.1	$	(24.5)		—		(24.5)		413.6
Europe		249.3		—		(5.6)		243.7		(129.7)		—		(129.7)		114.0
APMEA		30.9		—		(0.8)		30.1		(12.9)		—		(12.9)		17.2
Total	$	717.6		1.5		(7.2)		711.9	$	(167.1)		—		(167.1)		544.8

(1)

Americas goodwill additions during 2018 relate to immaterial acquisitions.


	December 31, 2017
	Gross Balance								Accumulated Impairment Losses						Net Goodwill
			Acquired		Foreign
	Balance		During		Currency		Balance		Balance		Impairment		Balance
	January 1,		the		Translation		December 31,		January 1,		Loss During		December 31,		December 31,
	2017		Period		and Other		2017		2017		the Period		2017		2017
	(in millions)
Americas	$	434.7		2.0		0.7		437.4	$	(24.5)		—		(24.5)		412.9
Europe		234.9		—		14.4		249.3		(129.7)		—		(129.7)		119.6
APMEA		30.2		—		0.7		30.9		(12.9)		—		(12.9)		18.0
Total	$	699.8		2.0		15.8		717.6	$	(167.1)		—		(167.1)		550.5

Long-Lived Assets

Indefinite‑lived intangibles are tested for impairment at least annually or more frequently if events or circumstances, such as a change in business conditions, indicate that it is “more likely than not” that an intangible asset might be impaired. The Company performs its annual indefinite‑lived intangibles impairment assessment in the fourth quarter of each year. For the 2018, 2017 and 2016 impairment assessments, the Company performed quantitative assessments for all indefinite‑lived intangible assets. The methodology employed was the relief from royalty method, a subset of the income approach. Based on the results of the assessment, the Company did not recognize an impairment on any indefinite-lived intangibles in 2018 or 2017. In 2016, Company recognized non‑cash pre‑tax impairment charges of approximately $0.4 million related to a trade name in the Europe segment.

Intangible assets with estimable lives and other long‑lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable. Recoverability of intangible assets with estimable lives and other long‑lived assets is measured by a comparison of the carrying amount of an asset or asset group to future net undiscounted pre-tax cash flows expected to be generated by the asset or asset group. If these comparisons indicate that an asset is not recoverable, the impairment loss recognized is the amount by which the carrying amount of the asset or asset group exceeds the related estimated fair value. Estimated fair value is based on either discounted future pre-tax operating cash flows or appraised values, depending on the nature of the asset. The Company determines the discount rate for this analysis based on the weighted average cost of capital using the market and guideline public companies for the related businesses and does not allocate interest charges to the asset or asset group being measured. Judgment is required to estimate future operating cash flows. In the fourth quarter of 2017, the Company recognized a $1.0 million impairment charge in the Americas segment for a technology asset as a change in market expectations indicated the carrying amount of this asset was no longer recoverable. In 2016, the Company recognized a $0.1 million impairment charge on long-lived assets.

Intangible assets include the following:


	December 31, 2018						December 31, 2017
	Gross				Net		Gross				Net
	Carrying		Accumulated		Carrying		Carrying		Accumulated		Carrying
	Amount		Amortization		Amount		Amount		Amortization		Amount
	(in millions)
Patents	$	16.1	$	(15.8)	$	0.3	$	16.1	$	(15.4)	$	0.7
Customer relationships		232.9		(146.9)		86.0		233.2		(133.5)		99.7
Technology		54.6		(27.3)		27.3		53.9		(23.1)		30.8
Trade names		26.1		(11.5)		14.6		25.5		(9.7)		15.8
Other		4.3		(3.5)		0.8		6.9		(6.0)		0.9
Total amortizable intangibles		334.0		(205.0)		129.0		335.6		(187.7)		147.9
Indefinite-lived intangible assets		36.2		—		36.2		37.3		—		37.3
	$	370.2	$	(205.0)	$	165.2	$	372.9	$	(187.7)	$	185.2

Aggregate amortization expense for amortized intangible assets for 2018, 2017 and 2016 was $19.6 million, $22.5 million and $20.8 million, respectively. Additionally, future amortization expense on amortizable intangible assets is expected to be $17.2 million for 2019, $16.2 million for 2020, $14.6 million for 2021, $13.5 million for 2022, and $11.6 million for 2023. Amortization expense is provided on a straight‑line basis over the estimated useful lives of the intangible assets. The weighted‑average remaining life of total amortizable intangible assets is 12.1 years. Patents, customer relationships, technology, trade names and other amortizable intangibles have weighted‑average remaining lives of 3.3 years, 11.0 years, 7.2 years, 13.7 years and 19.1 years, respectively. Indefinite‑lived intangible assets primarily include trade names and trademarks.